STOCK FORECASTING

A Way to Make Money in Wall Street

WHAT every investor wants to know is how to make money in the stock market. Wall Street has no end of theories on how to do it, but seldom has there been so much doubt about what the market is going to do. For this reason, in today's uncertain market, the technical experts, or chartists, who keep careful check on the slightest fluctuations of hundreds of stocks are most carefully listened to. Like horse-race handicappers, they try to guess the future on the basis of past performances.

One of the easiest ways to predict the future, according to a widely held Wall Street belief, is to assume that the public--or small investor--is wrong in sensing major changes in the market. Thus such chartists as Jacques Coe, senior partner of Jacques Coe & Co., keep close tab on whether the public is buying or selling by watching the trading in odd lots (fewer than 100 shares). Coe contends that the public is timid about buying as the market rises, usually buys heaviest near the top.

When the market slides, as it did for two months, Coe holds that the public, while buying more than it sells on the way down, finally becomes cautious. When the public gets really worried, it begins to sell short in substantial amounts in the belief that the market is going still lower. When this occurs, the market is due for a rally. During the market's lows last month, Coe's charts showed that this had happened; he rightly predicted a rally. Last week, as the Dow-Jones industrial average continued to rally, closing at 622.47, Coe expected the market to continue to rise.

Another school of technicians, typified by Lowry's Reports. Inc., pins most of its faith on a charting method --called breadth of market studies--that is widely used by other Wall Streeters. What Lowry's does is chart volume of stocks advancing and declining, correlate these figures with price gains and losses. The Lowry's chart shows whether buying power is stronger than selling pressure, and the reverse. Currently, the chart indicates that buying power, while weaker than selling pressure, is getting stronger.

Such chart experts as Walston & Co.'s Edmund Tabell and Du Pont Homsey & Co.'s G. S. Colby rely heavily on point and figure charts that carefully note every price fluctuation in hundreds of stocks, as well as the changes in market averages. A basic part of the theory is that the longer a stock or a market average stays in a narrow trading range, the greater will be its rise--or fall--when the stock or average breaks out. Tabell, who advised his clients to sell in January, now says: "The industrial average has begun to form a base. We may have seen the low point, but the market should take another two or three months of consolidating before it breaks out in a rally that will carry it to new highs."

One of the major criticisms by many a Wall Streeter of the technical approach to the market is that the technicians often cannot agree on what the charts signal. Last month, when the Dow-Jones industrial and rail averages dropped through their previous lows, such classic Dow theorists as Richard Russell held that a bear market was on (TIME, March 14). But another group of Dow theorists, led by E. George Schaefer of Indianapolis, argued that it was a false bear signal: the market was really getting ready to rise to new highs.

To study long-term trends, many experts use a cyclical approach such as Elliott's Wave theory. As interpreted by Bolton, Tremblay & Co. of Montreal, this holds that in any period of time, long and short-term price movements take place in five major phases or waves. "In the current market," explains Bolton Partner Hamilton Bolton, "we are well entrenched in the fifth and final upward wave--the last in a bull market."

For this reason, there is a large group of successful investors who pay little heed to charts, or what the market as a whole will do. These are the fundamentalists, the security analysts who spend their time studying the profits, prospects and management of individual companies rather than trying to fathom the market's movements. Nobody, they caution, "should buy the market," even when it is going up. Says Belmont Towbin, partner of the highly successful Wall Street underwriting firm of C. E. Unterberg, Towbin Co. (TIME, April 13, 1959): "The general movement of the stock market is the result of many variables. An error in judgment on any single variable can lead to the wrong conclusion."

The fundamentalists do not try to make money in market swings by buying or selling to catch the highs and lows. They contend that the way to profit is to buy a stock only after an exhaustive investigation, then hold it. They admit that the chartists often call the turn of a market trend. But in the long run, the investor who picks the right stock in the first place and has the courage to hold it does best. The right stocks will go up, no matter what happens to the rest of the market.

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